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The S&P/ASX 200 serves as Australia’s primary benchmark for market performance. It has become increasingly popular for investors to leverage exchange-traded funds (ETFs) that track this index, providing a straightforward means of gaining diverse market exposure without the necessity of intensive research into individual stocks.
Among the leading ETFs in this segment is Vanguard’s Australian Shares Index ETF (ASX: VAS), which allows investors instant diversification across the top 300 ASX-listed companies. Other notable alternatives include the BetaShares ASX 200 ETF (ASX: A200) and iShares’ Core S&P/ASX 200 ETF (ASX: IOZ). Although the S&P/ASX 200 remains a dominant index, there exists an alternative investment strategy that may offer better performance based on empirical studies: Equal Weighting.
Understanding Equal Weighting
Traditional indices like the S&P/ASX 200 are weighted by market capitalisation, ultimately providing larger firms with a greater influence. While this methodology has been prevalent for years, it may lead to unrecognised concentration risks. For example, with financial stocks making up approximately two-thirds of Australia’s benchmark, investing in what seems to be a diverse 200-stock fund may actually mean a concentrated exposure to the banking and resources sector.
In contrast, Equal-weight ETFs allocate identical weights across all constituent stocks, regardless of their market size. The MVIS Australia Equal Weight Index (ASX: MVW), which comprises 74 of Australia’s most substantial and liquid stocks, reflects this model, with each holding representing about 1.0% to 1.8% of the ETF’s portfolio. This approach is notably three times better diversified than the S&P/ASX 200.
Comparison of Sector Allocations
| Sector | S&P/ASX 200 | MVIS Equal Weight Index |
|---|---|---|
| Financial Services | 32.3% | 19.7% |
| Materials | 18.2% | 15.5% |
| Industrials | 9.0% | 16.0% |
| Healthcare | 8.6% | 9.4% |
| Discretionary | 7.3% | 5.5% |
| Real Estate | 6.5% | 9.5% |
| Telecommunications | 5.0% | 5.4% |
| Technology | 4.6% | 4.8% |
| Staples | 3.7% | 5.1% |
| Energy | 2.9% | 5.1% |
| Utilities | 1.9% | 3.9% |
Data calculated using ASX top 200 market capitalisation as of June 18, 2025 | Source: Market Index, VanEck
Academic Insights
Various international academic institutions have corroborated the benefits of equal weight investing:
- The University of London’s Cass Business School highlights long-term outperformance.
- EDHEC Business School’s findings suggest equal-weight portfolios yield superior mean returns in comparison to value-weighted portfolios.
- Research from Goethe University endorses the performance advantages of the equal weight methodology.
- Studies from Monash University further illustrate its benefits within the Australian market.
Since being documented in the 1970s, equal-weight strategies have increased in popularity, particularly in the US and Europe. The MVIS Australia Equal Weight Index has notably outperformed the S&P/ASX 200 in 11 out of the past 14 years.
Performance Evaluation
Here’s how MVW has fared against the S&P/ASX 200 over varying time frames:
| Year-to-date | 1-Year | 3-Years | 5-Years | 10-Years | |
|---|---|---|---|---|---|
| ASX 200 | 4.56% | 9.69% | 31.76% | 45.89% | 53.84% |
| MVW | 7.11% | 9.90% | 31.70% | 42.50% | 76.60% |
Data as of June 19, 2025.
Despite significant contributions from the Commonwealth Bank—which surged 19% year-to-date and remains 44% higher over the past year—the equal-weight ETF has outperformed by investing more strategically in stocks like Technology One, gold miners, and key industrial firms including Brambles and Qantas.
Moreover, the equal-weight design offers protection against underperforming major stocks; for example, while BHP has dropped 9.5% year-to-date, it comprises only 1.1% of the equal-weight ETF compared to approximately 10% in the S&P/ASX 200.
MVW’s dividend yield currently sits at 4.01%, slightly exceeding VAS (3.22%) and A200 (3.09%). However, it is important to note that equal-weight strategies may lag during periods of strong performance from top sectors like banking and mining due to their lower exposure to these industries.
In conclusion, as Commonwealth Bank crosses the $180 threshold with a high price-to-earnings ratio of 31, investors may find the equal-weight strategy provides a compelling alternative for both diversification and performance.
